Czech Prime Minister Stanislav Gross has offered to resign in the wake of a dispute over his financial affairs.

Mr Gross, Europe's youngest leader at the age of 35, said on Saturday he would step down when the shape of a new coalition was agreed, but gave no date.

He said Jan Kohout, ambassador to the European Union and a member of his Social Democrats, should replace him.

One of the accusations against Mr Gross involves the financing of a luxury apartment. He denies any wrongdoing.

'Dignified exit'

A meeting of the executive of Mr Gross' party on Saturday approved a plan to reform the coalition with its former partners, the Christian Democrats and the Freedom Union, who had walked out over the dispute.

One of the main steps the new government should take is working on the European constitution

Jan Kohout,Ambassador to EU

The new coalition would have a new prime minister and none of the previous party leaders in key posts.

The parties are likely to meet on Sunday to try to hammer out a deal.

Mr Gross said the Social Democrats would press on as part of a minority government if the other parties did not agree.

He survived a no-confidence vote in parliament on 1 April after Communist deputies abstained.

However, the minority government he was left with needs Communist backing.

The BBC's Rob Cameron in Prague says Mr Gross seems to have seen the writing on the wall and is now trying to negotiate a dignified exit.

A key question for the future government will be whether to call a referendum on the EU constitution or simply have it ratified by parliament.

The dispute over Mr Gross' financial affairs broke in January with a newspaper investigation.

It centred on how he had raised finances to pay for a luxury flat in Prague.

Another accusation was that his wife's business partner rented out a building to a brothel.